Is Donald Trump already president? Financial markets seem to think so.
At the Federal Reserve’s final interest rate-setting meeting of 2024, Chair Jerome Powell revealed that the central bank is starting to factor Trump policies into its monetary policy decisions. Powell didn’t mention Trump by name. But investors clearly understood this elliptical construct as a reference to the incoming president:
“Some people did take a very preliminary step and start to incorporate highly conditional estimates of economic effects of policies into their forecast at this meeting.”
Translation: Trump has promised tariffs, the deportation of migrant workers, and other policies that could generate inflationary pressures and distort the economy in other ways. Fed policymakers may have to change course as a result. If inflation picks up, for instance, the Fed might have to stop cutting interest rates and start hiking them.
The Fed did cut interest rates by a quarter point at the December meeting, but the central bank’s newly hawkish tone spooked financial markets. Stocks fell 3% on the day and a modest recovery still left stocks down for the week. Post-election euphoria in markets has evaporated as investors begin to grapple with the disruption Trump’s radical policies could cause.
"Markets will have to work through a period of policy uncertainty," Citi analysts wrote in a December 20 research note. "Investors should be prepared for lingering volatility into Q1."
As a timely illustration of the risks, Trump and his surrogate Elon Musk threw Congress into disarray by persuading House Republicans to kill a bipartisan spending bill that would have kept the government funded and operational into 2025. Musk actually took the lead on that, posting more than 100 screeds on his social media network X exhorting Congress to kill the bill. Trump weighed in later, seconding Musk. So Congress killed that bill and started working on others.
Congress finally passed a short-term spending bill after a week of chaos. But the fractiousness between Trump, Musk and Republicans in the closely split House suggests Trump will struggle with other legislative goals, even though his party will control Congress next year.
Worth noting: Joe Biden is still president. The current Congress is the one in which Democrats still control the Senate. The next Congress, with full Republican control, doesn’t convene until Jan. 3. Trump won’t succeed Biden until Jan. 20.
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Yet the final days of the Biden presidency are about as lame as a lame duck gets. Biden is virtually invisible and his frailty increasingly dominates the narrative of his presidency. The Wall Street Journal ran a year-end exposé asserting that Biden has been functioning with diminished capabilities for most of the last four years. Few Americans seem to doubt it, or even care, at this point.